America is entering a Forever Labor Shortage (2023)

Ever since the pandemic, American companies big and small have been scrambling to find enough workers to stay fully staffed. They've been forced to offer big salaries and generous perks, while employees were free to shop around for better offers or simply walk off the job to join the Great Resignation. But now, layoffs are up and job openings are down. The economy is slowing, and the Federal Reserve is hiking interest rates at the fastest pace in decades. By any objective measure, the balance of power in the job market should be tipping back to employers.

Strangely, though, it isn't. Ask pretty much anyone who's hiring these days, and they'll tell you something curious: It remains incredibly hard to find and hire enough qualified people for the roles they're desperately trying to fill. Somehow, workers still hold the power — and a massive shift that's underway in the labor market could keep it that way forever.

The shift boils down to demographics. Ever since the baby boom that followed World War II, companies have enjoyed a never-ending supply of workers to tap. Hate your job? Fine — we'll just replace you with one of the hundred others who would be happy to fill your shoes. The abundance of workers made them cheap — and disposable.

(Video) The Forever Job Shortage In The US

But now, those baby boomers are retiring in droves, and companies are suddenly finding themselves without an endless reserve of available bodies. "The labor shortage we're dealing with today is likely to remain this way — and perhaps get even worse," says Jay Denton, the chief analytics officer at LaborIQ, which provides salary analysis to employers. "It's going to continue to be really hard to attract people and get them into new jobs." We're entering what is shaping up to be the Forever Labor Shortage.

It may seem like ancient history today, but the baby boom that followed the Second World War spurred a massive shift in the US labor market. As the boomers came of age, the economy was suddenly flush with millions of new workers looking for jobs. The working-age population jumped by 17% in the 1960s and by another 19% in the following decade. If you were looking to hire, times were good.

(Video) The Great American Labor Shortage: Is the Economy in Crisis?

But the boomers, unlike their parents, didn't have many babies themselves. The pill and the legalization of abortion sent fertility rates cratering — from 3.7 babies per woman in 1960 to 1.8 babies a decade and a half later. For a few decades, an influx of women and immigrants into the workforce kept the labor pool expanding. But by 2000, the rising supply of female workers reached its peak. And after Donald Trump took office, immigration took a nosedive. That meant there were no new workers left to hire, just as the first of the baby boomers were starting to retire.

Then COVID-19 put the labor shortage into hyperdrive. Immigration came to a standstill, the boomer retirement wave began in earnest, and millions of younger boomers decided to tap into the stock boom and retire early. "All these tailwinds were pushing in the same direction, and suddenly they were all stopping at the same time," says Aaron Terrazas, the chief economist at the job-search site Glassdoor. "The slow-moving demographic tidal wave is finally cresting."

In April, the unemployment rate declined to its lowest level since 1969 — meaning there are few available workers left to hire. Despite all the talk of how "no one wants to work anymore," there's actually a higher share of 25- to 54-year-olds with a job today than before the pandemic. And the shortage is just getting started. The Congressional Budget Office projects the potential labor force to expand by a mere 3.6% between 2022 and 2031 — one-eighth of the pace in the 1970s. Over the following decade, that growth is projected to slow even more, to 2.9%. That means employers face decades of an essentially stagnant labor pool.

So what does the Forever Labor Shortage mean for workers in the years ahead? The bottom line is there will be an all-out competition for their services. For starters, they can expect higher salaries: In April, average hourly earnings jumped 4.4% from a year earlier. Denton, the labor analyst, expects wages to continue rising above the 2% annual bumps we saw in the decade before the pandemic struck.

(Video) Labor shortage? Florida man applies for 60 jobs, gets 1 interview

To attract enough workers, employers will also be forced to provide better benefits and working conditions. Terrazas points to the "big mindset shift" taking place in the trucking industry. To attract more drivers, some companies have started to break up their long-haul routes, allowing drivers to do shorter runs instead of forcing them to endure grueling, cross-country shifts. "When labor supply is plentiful, it's easier to do the business practices that are optimal for the business," Terrazas says. "But when labor is scarce, companies need to be more active in listening to what their employees want."

Another effect of the labor shortage: In the years ahead, younger workers can expect to receive faster promotions as older bosses retire. Last year, by one estimate, 29% of managers — and 40% of CEOs — were 55 or older. As those old-timers begin to collect their gold watches and head for Florida, a generation of younger workers is going to find themselves elevated at a rapid clip. "There's going to be a lot of opportunity for career progression," Denton says.

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But perhaps the biggest change prompted by the labor shortage won't be how employers hire — it will be who they hire. Facing a constrained supply of workers, companies will be forced to employ those they have long shunned or ignored. The federal government is relaxing drug-testing requirements for job candidates, and more businesses are hiring people with criminal records. Companies are also making jobs more flexible, to attract mothers with young children and people with disabilities. In the Forever Labor Shortage, all labor is going to be in demand.

But here's the thing about this new age of labor scarcity: Employers aren't going to take it lying down. The labor shortage makes workers more expensive, and that's not a price companies are willing to pay. "High prices spark innovations that expand supply and ultimately lower prices," Terrazas says. "Some of these innovations will be small, and some of them will be really big."

So what kind of "innovations" will employers introduce? Some will turn to a tried-and-true tactic: offshoring. If businesses can't find enough workers at home, they'll just look overseas. Denton expects a lot of companies to say, "Hey, we just don't have the people to do what we need to do here, and we're going to find it where we can." As I wrote last year, tech companies are already moving their software-engineering roles abroad, hiring coders in places like Latin America.

Other companies will attempt to eliminate the need for workers altogether. Take leisure and hospitality, a sector that no longer enjoys access to a steady stream of young, low-wage workers. Restaurants have started replacing servers with app-based ordering systems, and hotels have reduced the need for housekeeping staff by doing away with daily room cleanings. Those are changes businesses could easily have made in the past — mobile apps, for example, have been around for more than a decade — but they didn't think them worth the investment until an acute staffing shortage forced them to rethink the way they operated. Now the question is: At what point do these adaptations-by-necessity end up eradicating entire occupations for the next generation?

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That means the Forever Labor Shortage will be more an ongoing battle than an enduring peace. Power never changes hands without a struggle. Millions of workers are going to benefit from the new demographic shift — but the greater the reward to employees, the greater the backlash from employers will be. "There's a risk to this idea that the labor supply is perpetually going to be tight moving forward," Terrazas says. "It's a mistake to assume the line is always going to be upward to the right. There are going to be blips — potentially big blips — along that path."

Aki Ito is a senior correspondent at Insider.


America is entering a Forever Labor Shortage? ›

The Congressional Budget Office projects the potential labor force to expand by a mere 3.6% between 2022 and 2031 — one-eighth of the pace in the 1970s. Over the following decade, that growth is projected to slow even more, to 2.9%. That means employers face decades of an essentially stagnant labor pool.

How much longer will the labor shortage last? ›

She said that according to the World Bank, over the next decade, the number of people of working age (between ages 15 and 65) will decline in the U.S. by over 3 percent. "And that trend will continue beyond 10 years," she said.

Why is everyone short staffed? ›

During the pandemic, stimulus and unemployment payments made it possible for employees to step back and take stock of what they wanted from a career. Many people used this time to change careers, which led to higher shortage rates in entry-level industries such as manufacturing and hospitality.

How can we solve labor shortage? ›

How can the shortage of labor be overcome?
  1. Recruiting: More Referrals = Better Employees.
  2. Optimize the Onboarding Experience.
  3. Make Training an Ongoing Process.
  4. Provide Context Around Why Policies and Processes Change.
  5. Better Scheduling for Better Lives.
  6. Build Better Teams Through Better Communication.
  7. Recognize and Reward.
Apr 19, 2023

What would happen if there was a labor shortage? ›

If left unchecked, the U.S. worker shortage will lead to even higher inflation, reduced incomes, higher taxes and a smaller economy that will hurt all Americans. Policymakers need to expand education alternatives, encourage flexible work, end welfare without work and constrain out-of-control federal spending.

Why is no one working in the US? ›

It's no secret that the COVID-19 pandemic changed the world of work. Many companies had to downsize or close, millions retired early, and the average employee sought more freedom and flexibility in their working schedules. All of this resulted in a lower labor force participation rate where less Americans were working.

Why is it so hard to hire right now 2023? ›

A global pandemic impacted every employment sector, as well as supply chains. Conditions brought significant changes to the workforce, such as remote work and hybrid work. Relocations away from major cities, a reaction to some quarantines, also occurred.

Why are people quitting their jobs? ›

Why are people quitting their jobs? At the onset of the Great Resignation in Spring 2021, the most cited reason among respondents in the McKinsey survey for why they quit their jobs is feeling uncared for by managers and tense relationships with colleagues.

Are there enough jobs for everyone in America? ›

We have a lot of jobs, but not enough workers to fill them. If every unemployed person in the country found a job, we would still have 4.2 million open jobs.

What is the great exit? ›

About 50.5 million people quit their jobs in 2022, besting the prior record set in 2021, according to the federal JOLTS report. The pandemic-era trend of elevated voluntary departures came to be known as the Great Resignation. Most people quit to take new jobs, not to leave the workforce altogether.

Is the great people shortage coming? ›

The Great People Shortage is coming, warn experts. A Korn Ferry report revealed that by 2030, there will be a global human talent shortage of more than 85 million people – roughly the population of Germany.

What happens if the labor shortage doesn't end? ›

If this labor shortage continues, there will be rising wages, inflation, and supply chain issues in the short term. In the long term, it could halt GDP growth, induce a recession, and cripple the future expansion of sectors dominated by blue-collar and manual workers.

Does labor shortage cause inflation? ›

The staggering inflation rates were an added blow over the last year, and these two phenomena are connected as labor shortages contribute to the inflation rate's unsustainable growth. Supplementing our labor force by recovering pandemic-era immigrant worker losses can help reduce inflation in the U.S.

What is the fastest method for eliminating labor shortages? ›

The most widespread methods for eliminating a labor shortage are hiring temporary and contract workers and outsourcing work.

How are companies responding to labor shortages? ›

To address worsening labor shortages, employers are attracting candidates by offering starting and sign-on bonuses and increasing the transparency of salary information in job ads. They are lowering educational requirements and offering more initial job training.

How are companies overcoming labor shortages? ›

Solving the country's manufacturing labor shortage will take a coordinated effort involving industrial companies revamping talent practices, educational institutions refocusing training and upskilling programs on manufacturing, and local, state, and federal governments considering supportive policies and programs.

What percent of Americans don't work? ›

As of March 2021, just under 5 percent of the prime-age population was actively searching for work but was unable to find a job (the unemployed). The remaining 19 percent of the prime-age population doesn't have a job and isn't looking for one (Figure 1).

Is America the hardest working country? ›

Most U.S. workers work an average of 34.4 hours per week. Around the world, however, many people work longer hours.
Top 10 Hardest Working Countries in the OECD:
RankCountryAverage hours worked in 2021:
2Costa Rica2,073
4South Korea1,915
6 more rows

What job is shortage in America? ›

Labor shortages are plaguing the transportation industry nationwide, disrupting one of the economy's most critical support systems. The sector is struggling to hire truck drivers, warehouse personnel, couriers, skilled technicians and public transit workers.

Why is everyone hiring but not hiring 2023? ›

Why is quiet hiring a 2023 trend? The current economic uncertainty is one reason why quiet hiring is a current trend, as companies may be more likely to slow down hiring, according to McRae. Another reason, she explained, is a widespread talent shortage.

How many people are expected to be laid off in 2023? ›

The running total of layoffs for 2023 based on full months to date is 168,243, according to Tech layoffs conducted to date this year currently exceed the total number of tech layoffs in 2022, according to the data in the tracker.

Are job losses coming in 2023? ›

In the first quarter of 2023, companies announced 270,000 job cuts, according to outplacement firm Challenger, Gray & Christmas —more than four times the number of cuts in the year-ago period. "We know companies are approaching 2023 with caution, though the economy is still creating jobs.

Where is the job market headed in 2023? ›

In 2023, resume and professional brand optimization will be much more critical. Job seekers might see fewer open positions this year, and there might be more competition, but they can still find incredible opportunities by focusing on specific employers and using their networks to their advantage.

Is the labor shortage causing inflation? ›

The first piece in our labor shortages series demonstrated how labor shortages negatively impact Americans' quality of life. The staggering inflation rates were an added blow over the last year, and these two phenomena are connected as labor shortages contribute to the inflation rate's unsustainable growth.

Why is US labor force shrinking? ›

U.S. industries have become increasingly concentrated in the 21st century, leaving fewer employers in local labor markets. This is not good for workers.

Is the labor market getting better? ›

What to expect as a job seeker. Federal data suggests the job market is cooling but still historically strong. Job openings fell to the lowest level since May 2021, according to a report from the Bureau of Labor Statistics. But the number of openings and voluntary quits by workers are above pre-pandemic levels.

Will it be hard to get a job in 2023? ›

Overall, the job market is likely to slow down in 2023 as compared to the historically low unemployment rates of 2022. This is considered a return to normal economic conditions. However, new jobs will be created, and there will be opportunities for diligent job seekers to find work.

Are layoffs coming in 2023? ›

The running total of layoffs for 2023 based on full months to date is 168,243, according to Tech layoffs conducted to date this year currently exceed the total number of tech layoffs in 2022, according to the data in the tracker.

Will unemployment bring down inflation? ›

Higher unemployment, on the other hand, equates to lower inflation. When more people are working, they have the power to spend, which leads to an increase in demand. And prices (inflation) soon follow. The opposite is true when unemployment rises.

Will jobs increase pay due to inflation? ›

Inflation causes a loss in consumers' purchasing power as prices go up. And organizations increase wages only to the extent that the value of what employees produce increases – either because employees are producing more or because inflation is leading to an increase in demand for goods and services.

Why is inflation running so high? ›

Money supply: When people experience an increase in income or spending opportunities, they are more likely to spend before they save. This often causes more demand than there is supply. This cause is linked to demand-pull inflation.

What percentage of people are not working in the US? ›

Household Survey Data

Both the unemployment rate, at 3.4 percent, and the number of unemployed persons, at 5.7 million, changed little in April. The unemployment rate has ranged from 3.4 percent to 3.7 percent since March 2022. (See table A-1.)

How tight is the US labor market? ›

As a general rule, the labor market is tighter or looser because more or fewer people are employed or looking for jobs. However, the recovery from the pandemic has been an exception. Total hours worked in the U.S. fell from 2019 to 2022 — by the equivalent of 33 fewer hours a year per person.

Is the working age population declining in the US? ›

Consequently, the share of working-age people (ages 15-64) in the U.S. population has shrunk, down to 64.9% in 2021, from a peak of 67.3% in 2007. In addition, the share of people dependent on the working-age population has grown since 2010 —a trend that shows no signs of slowing.

Why is it so hard to find a job right now? ›

It can be so hard to find a job for job seekers because employers want candidates with prior work experience, having a lack of a professional network, and being over or underqualified. Employers are looking for candidates that have people skills and candidates that have signs of responsibility such as leadership roles.

What is the prime age workers? ›

Furthermore, the labor force participation of prime-age workers — those between the ages of 25-54 — is at 83.3%, equal to that of January 2020 and the highest rate since September 2008.

Why has hiring slowed? ›

The labor market is slowing as higher interest rates start to filter through the economy. The U.S. job market is showing signs of softening as rising interest rates and slowing economic growth begin to take their toll on hiring.


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